Non-receipt of report of DVO, matter deserves to be restored instead of confirming addition based on stamp authority valuation and in similar other circumstances

[DEVKUMAR KOTHARI]

Recent case law under study:

PRABHA PRADEEP BIYANI VERSUS INCOME TAX OFFICER, WARD-1 (3) (4) , SURAT [2024 (5) TMI 796 - ITAT SURAT]

Scope of this article is limited to issue  about order of ITAT confirming addition because valuation report of DVO was not received. In the order there are several other aspects, involved, however, author found that this issue is such which require a reconsideration to render justice.

Search on this website:

Search Text: restored when Valuation Report not received – 2933 records

Search Text: Valuation Report not received from DVO - 1315 records

Search Text: restored when Valuation Report not received from DVO – 342 records found

In above search reports there are likely overlapping and these also include valuation report from other authority or other method in case of some type of capital assets for the purpose of assessment.

On reading of various  judgments in past  over a long time , it is observed that it is  general practice to restore the matter to the AO or CIT(A) to refer the matter to DVO, if reference was not made, or obtain report from DVO and decide the matter afresh. In some cases related with other provisions matter was restored to adopt some other suitable method of valuation.

This is required to comply with the principal and procedure to adhere to affording reasonable opportunity and  to meet the principal of natural justice and avoid unjust order.

In case of PRABHA PRADEEP BIYANI supra.

However, honorable Tribunal has taken a different stand and confirmed the addition.

The assessee has disputed , in ITR itself ,valuation by stamp authority by declaring capital gains based on actual consideration instead of stamp authority valuation.  In  course of assessment also this dispute was raised and various negative factors were submitted to lower the valuation. Ld. AO referred the matte to the DVO. However, report of DVO was not received by the time assessment was made and seemingly not even when ITAT heard the matter.

Honorable Tribunal confirmed the addition. This is not justified and is not in accordance with precedence in similar circumstances.

From order of Tribunal on this issue , summary with highlights:

Grounds:

“1) That on the facts and in the circumstances of the case as well as in law, the ld. CIT(A) has erred in sustaining the addition of Rs. 47,38,280/- made by AO by wrongly denying the deduction of additional cost of construction incurred by the appellant in the flat sold during the year and thereby erred in upholding the assessment of Short Term Capital Gain (STCG) on sale of said flat at Rs. 34,12,167/- as against the short term capital loss (STCL) of Rs. 13,26,113/- suffered by the appellant and claimed in the return of income. The addition so made by ld. AO and sustained by ld. CIT(A) is grossly wrong, unjustified and contrary to the law. Appellant prays for deleting the same.

2) That on the facts and in the circumstances of the case as well as in law, the ld. CIT(A) has erred in sustaining the addition of Rs. 3,04,819/- u/s 56(2) of the I.T. Act, 1961 (the Act) without properly and fairy considering the deficiencies in the land purchased pointed out by the appellant and without complying with the provisions of first proviso below S.56(2)(vii) of the Act. Addition so made and sustained is grossly wrong and unjustified on facts as well as in law and is contrary to the settled law. Appellant prays for deleting the same.

From paragraphs 2 and  10 of the order relevant to the point in article (DVO report not received highlighted:

Paragrpah 2 is about ascertainment of cost of improvement and para 10 is about another property purchased at consideration lower than stamp valuation.

2.  ......... To ascertain the fact, the matter was referred to Departmental Valuation Officer (for short, “DVO”). However, till date of passing the assessment order, no report with respect to extra work / furniture work undertaken by the assessee has been submitted. .....

10. Next ground pertains to addition of Rs. 3,04,819/- u/s 56(2) of the Act. The assessee along with co-owner, Smt. Pusphpadevi M.Biyani purchased a property for Rs. 7,00,000/-. During the assessment proceedings, information was called for from the office of the Sub- Registrar, Athwa, Surat regarding stamp duty value. The market value ascertained by the Stamp Valuation Authority was Rs. 13,09,638/-. Since the difference between the market value and consideration for purchase was Rs. 6,09,638/-, which was more than Rs. 50,000/-, the provisions of sub-clause(b)(ii) of Clause-(vii) of section 56(2) of the Act are clearly attracted. In response to the notice by the AO, the Ld. AR stated that the assessee registered the property by paying full stamp duty as per market value written in the Registrar record. The AO had provided copy of the value action report received from the Sub- Registrar office and he asked the assessee to explain why the difference in the value of Rs. 3,04,819/- (assessee’s share) should not be added to the income of the assessee. In reply thereto, the assessee stated that the plot is situated in a slum area of Magdalla Port where workers and milkmen are living. There is no street light, no drainage, no road and no water supply in the area. The plot is also at lower level than normal level. Due to low level of the land, lot of garbage and rain water gets stored in the area. Due to above reasons, the fair market value of plot is much less than the jantri value. Therefore, assessee requested to refer the matter to DVO for ascertain the fair market value as per the proviso below u/s 56(2)(vii) of the Act. The AO accepted to the request of the assessee and sent for valuation before DVO. However, no report from the DVO has been received. The Ld.AR has stated that due to location of flat in an under-developed area and for the reasons stated during the assessment year, it is likely to fetch less price as compared to the properties in the area. However, he has not been able to furnish any evidence to support his claim. The burden of proof lies on the assessee which has not been discharged with cogent evidence and details. At this stage, it may be stated that the Ld.AR argued that no such addition has been made in case of other co-owners of assessee. However, he has not able to give the assessment order of other co-owners to establish that the impugned issue was duly examined by the AO of the other co-owners. It is common knowledge that only a few cases are picked up for scrutiny and if the case of some other persons have not been picked up for scrutiny and accepted under u/s 143(1) of the Act, the same cannot be a ground for not making the addition, which is otherwise sustainable on facts and clear operation of law at the relevant point of time. The report of DVO has also not been given to us to reconsider the amount of addition made by the AO. Therefore, we sustain the addition made by the AO. Accordingly, this ground of assessee is dismissed.

Observation:

It is clear that a reference to DVO was made, Ld. AO did not receive  report from DVO, in any case Ld. AO did not provide the report to the assessee. In turn  assessee was unable to submit report to the Tribunal. The honorable Tribunal also not asked the DR or the AO to update position about report from DVO. In fact, it appears that honorable Tribunal has in a way put the burden and blame on assesse by writing in the order “ The report of DVO has also not been given to us....”

Honorable Tribunal has straight away confirmed addition and not even given consideration of various shortcomings about plot of land as pointed out by the assesses to prove the same, if so required.

The cost of additional work was accepted based on facts and documents including direct payment to vendors/ contractors by the bank as disbursement of loan. Therefore, in that regard, at least the assesses has not suffered,

In absence of report of DVO it was fit case to restore the matter to the Ld. AO to call for report of DVO. Provide a copy to the assessee and afford reasonable opportunity to assessee to file his views on the valuation made by the DVO and to dispute it if so required with reasons and supporting. Then to decide the issue afresh.

By not doing so, justice has not been done and this is  for no fault of assesse because it was duty of the Ld. AO to obtain report from DVO and provide a copy to the assessee and allow reasonable opportunity to submit his views on valuation made by DVO. The assessee  has suffered due to confirmation of addition.